Mark Twain is another wonderful source of great quotes that cut to the heart of issues. He was perhaps the first author to get to the heart of America's belief structure with finely drawn characters that inhabit his two most popular books "The Adventures of Tom Sawyer" and "The Adventures of Huckleberry Finn."  His remarkable insight also led him to give some great quotes. Here's one of my favorites:

"It ain't what you don't know that gets you into trouble.

It's what you know for sure that just ain't so."

This is certainly true in the homebuying process. Out of my more than 4,500 clients I think I can safely say that in a majority of cases, I had to help them "unlearn" something that was not true.  You can't build a structure of good decisions on a foundation of factoids.  For those who don't know that word, it's a word coined by Norman Mailer. The Washington Post described it as:

"something that looks like a fact, could be a fact, but in fact is not a fact"

Some of these factoids were perhaps learned at a prior time when the world was a different place than it is today.  As I look at the cycles of the last 30 years, I can assure you that each five-year period was remarkably different than the one before it. Today the landscape is so totally different that almost anything you learned before is obsolete.

The other thing that is important to understand is that borrowers think that because they got a loan before that they can do it again. In many cases, if not most, that just means they will repeat the mistake they made the first time, perhaps with another new mistake thrown in for good measure.

Of course, the tricky thing in this whole process is that most borrowers do not know that they made a mistake. That falls under another great quote, attributed to Thomas Grey.

"When ignorance if bliss, ‘tis folly to be wise."

Well, my friends, ignorance is certainly not blissful. Even worse, it is expensive.  When you are buying a $400,000 home, one single mistake most people make can easily cost $7,000.  If it's an $800,000 home, you're talking $14,000.

The problem is that our industry does not offer simple coaching like this: "I have alternative A or alternative B.  B saves you $14,000. Which would you prefer?"  It would be easy if it was like that, but it isn't. You need training and help from an expert.

Bottom line, becoming educated about mortgages can pay big dividends. Read a book, maybe two or three.

 

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

I have a collection of sayings from this wonderful American bard. This is one of my favorites:

There are three kinds of men: The ones that learn by reading. The few who learn by observation. The rest of them have to pee on the electric fence and find out for themselves.

When it comes to mortgages and homebuying, fewer and fewer fall in the first category. My publisher, John Wiley & Sons, just reported to me that the sales of all real estate books are off 75% from a few years ago. The sales of my book are off just as badly, maybe worse.  In my local two-story Barnes & Noble store, a mere 4 feet of shelf space is devoted to these books compared with 12 or 16 feet a few years ago.

Learning by the second method could be helpful, but it is nearly impossible to find someone buying a home and follow him around and try to learn from him as he does it.  No one does that and, unlike the obligatory "birds and bees" discussion, it doesn't seem to be a task that parents take on.

Most people seem to be in the third category. Obviously prominent among them are those who bought a home they could not afford, got a toxic mortgage, or more likely, both.  Millions of those people have been foreclosed upon or are going to lose their homes in the next few years. And I can practically guarantee you that almost none of these people read a book about mortgages and homebuying beforehand.

These people went through the process not even realizing at the time that they made a number of costly mistakes. In most cases, as escrow closed they were still totally clueless.  They didn't read or understand the purchase contract, the escrow instructions, the loan disclosures, the loan documents, or the final closing statement.  They just worried about, "When do I get the key?"

 

So where did they get their information?

Nowhere.  They had none. In reality, they had an encounter with an electric fence. They just didn't understand it at the time. In fact, many of the forces that got them into trouble – specifically greedy real estate agents and slimy mortgage loan officers – not only didn't want them to understand, they went out of their way to make sure that the people DIDN'T UNDERSTAND what they were doing.

Had the homebuyers really understood the implications of what they were signing, they would have aborted the transaction and no one would have made any money.

So whatever you do, especially when buying or refinancing a home, get educated about it. Start by visiting your local library or bookstore.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

I have a collection of sayings from this wonderful American bard. This is one of my favorites:

There are three kinds of men: The ones that learn by reading. The few who learn by observation. The rest of them have to pee on the electric fence and find out for themselves.

When it comes to mortgages and homebuying, fewer and fewer fall in the first category. My publisher, John Wiley & Sons, just reported to me that the sales of all real estate books are off 75% from a few years ago. The sales of my book are off just as badly, maybe worse.  In my local two-story Barnes & Noble store, a mere 4 feet of shelf space is devoted to these books compared with 12 or 16 feet a few years ago.

Learning by the second method could be helpful, but it is nearly impossible to find someone buying a home and follow him around and try to learn from him as he does it.  No one does that and, unlike the obligatory "birds and bees" discussion, it doesn't seem to be a task that parents take on.

Most people seem to be in the third category. Obviously prominent among them are those who bought a home they could not afford, got a toxic mortgage, or more likely, both.  Millions of those people have been foreclosed upon or are going to lose their homes in the next few years. And I can practically guarantee you that almost none of these people read a book about mortgages and homebuying beforehand.

These people went through the process not even realizing at the time that they made a number of costly mistakes. In most cases, as escrow closed they were still totally clueless.  They didn't read or understand the purchase contract, the escrow instructions, the loan disclosures, the loan documents, or the final closing statement.  They just worried about, "When do I get the key?"

 

So where did they get their information?

Nowhere.  They had none. In reality, they had an encounter with an electric fence. They just didn't understand it at the time. In fact, many of the forces that got them into trouble – specifically greedy real estate agents and slimy mortgage loan officers – not only didn't want them to understand, they went out of their way to make sure that the people DIDN'T UNDERSTAND what they were doing.

Had the homebuyers really understood the implications of what they were signing, they would have aborted the transaction and no one would have made any money.

So whatever you do, especially when buying or refinancing a home, get educated about it. Start by visiting your local library or bookstore.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

The White House announced another program designed to help homeowners headed for foreclosure.  In addition, the nation's largest loan servicer has swung into action with a new program that promises some possible relief by reducing the balance owed on a homeowner's mortgage.

The government’s new program is specifically targeted at homeowners who are behind on their mortgages due to unemployment. Borrowers have to be collecting unemployment benefits and be less than 90 days late on their mortgages. The program does not provide forgiveness, as any missed payment will be tacked on to the loan balance to be paid later.  It is not clear whether homeowners whose unemployment benefits have terminated will also be helped.  While this is good news for a small slice of those borrowers in distress, it does not address the needs of the millions of people facing imminent foreclosure.

Another program, again one that is narrowly defined, is designed to help homeowners whose homes are slightly under water. If the old lender is willing to forgive debt that exceeds 115 percent of the home's value, the government-controlled FHA program would issue them a new fixed rate loan.  At that loan-to-value, borrowers are untouchable under loan standards now in place. The borrowers would need to qualify for the new loan payment, but it gives them a presumably lower payment and a risk-free loan.

The government also acknowledged that out of 1.1 million borrowers who had been offered temporary modifications, only 170,000 people successfully transitioned to a permanent modification.  This number is further evidence that the foreclosure prevention programs have not been well designed.

Bank of America is offering borrowers holding so-called Option ARMs the ability to get a new loan, one with a principal balance as much as 30 percent less than their current mortgage balance, if they are under water. Of the forgiven loan amount that would be set aside, 20 percent would be forgiven each year if the borrower continues to make payments. At the end of five years, the entire amount would end up having been forgiven.

This is another very modest program whose borrowers must have a specific type of loan, be behind in their payments, and have a loan balance greater than the value of the home. Not to mention that 45,000 is a small percentage of the well over 1 million of the bank's loans that are currently more than 60 days delinquent.

This program will not likely hurt the company's earnings as, according to the 2009 3rd Quarter 10Q filed with the Securities and Exchange Commission: "Certain acquired loans of Countrywide that were considered impaired were written down to fair value at the acquisition date."

It's worth noting that Bank of America had previously entered into an agreement in 2009 with the Attorneys General of most of the states that set aside more than $8 billion dollars to re-write the loans of these same types of borrowers, holders of Option ARMs. The bank has never reported statistics on the progress or performance of activities under these agreements.

The government and the industry keep waltzing around the edges of the problem. They are helping borrowers by the tens of thousands, while some analysts say that as many as 12 million borrowers are facing foreclosure over the next three years.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.